Factoring Firms: Maximizing Cash Flow for Your Business

What is a Factoring Firm?

A factoring firm, also known as a factor, specializes in purchasing unpaid invoices, known as factoring of accounts receivables, providing quick payment often within 24 hours. They handle the task of collecting payment from your customers, saving you from debt, time-consuming processes, and potential credit impacts on your business and personal credit.

What is Accounts Receivable?

Accounts receivable is an amount that is owed to a company by a customer who purchased goods or services on credit. Accounts receivable are considered an asset on the company’s balance sheet. Smart business owners are always looking for ways to improve their cash flow. Some have realized the effectiveness of working with invoice factoring companies. A factor purchases the accounts receivable (AR) and provides business owners with necessary working capital to pay for expenses such as payroll, inventory, office supplies, marketing, advertising and even taxes.

When a company decides to factor its invoices, it first looks for factoring companies that serve their industry. They review their existing invoices to determine which ones they can sell in order to cover the cash shortfall they have. This is one of the easiest and fastest ways to inject cash into a company.

How Much Are Your Accounts Receivable Costing You?

Carrying accounts receivable costs your business money. After all, every one of the outstanding sales invoices on your aged AR report represents your money sitting in someone else’s bank account. But the cost of financing accounts receivable is only one part of the total cost you are bearing. In addition, there are other hidden costs that you may not have considered. Indeed, when you factor in time, financing, and opportunity costs, carrying a significant AR balance can be highly costly to a business. Many businesses turn to invoice factoring to manage the cash flow shortage with overdue receivables.

RELATED: 8 Rules for Managing Your Accounts Receivable

Why do Companies Factor Receivables?

Invoice factoring converts your accounts receivable into working capital without creating debt or adding liability. Factoring does not rely on your credit rating, collateral, or bringing in investors, so companies who have faced previous cash flow challenges may more easily qualify for funding. This type of financing helps companies free up capital that is stuck in unpaid debts. Universal Funding may fund up to 95% of your accounts receivable, getting monies owed to you working for you before they are paid, with rates starting as low as 0.55%.

Benefits to invoice factoring include:

RELATED: 10 Considerations When Selecting the Best Factoring Company for Your Business

What Does a Factoring Firm Do?

A factoring lender purchases a company’s outstanding invoices at a discount. The company receives a percentage of the invoice value ranging from 80-95% within a few days. The factor takes ownership of the invoice and the payment process. Once the invoice is paid in full, the remainder invoice balance is paid to the business minus the factoring fee. This approach enables businesses to quickly improve their cash flow without having to go through the lengthy process of applying and waiting for approval of a bank loan. The invoice factoring process is fairly simple and quick and funding can occur within a matter of days.

How Does Factoring Impact My Credit Score?

Factoring firms distinguish themselves from conventional lenders because they do not extend loans. Instead, they purchase assets, such as your invoices. Consequently, you don’t accumulate debt, and using factoring services doesn’t affect your credit score, except for any impact from the initial credit evaluation.

How to Choose the Best AR Factoring Company

Invoice factoring is a great way to release the working capital tied up in your sales ledger giving your business the opportunity to secure the funding you need for expansion, purchase of additional raw materials, payroll, or simply cover day-to-day operating expenses.

But not all invoice factoring lenders are the same. Indeed, some factors work on significantly different terms and conditions than others. And, of course, some factoring companies have better reputations than others.

Selecting a factoring business for your company is a big decision. So, it is advisable to do your due diligence before choosing the factoring company that is best for your organization. The best factoring firms will work with you to find an arrangement that suits both parties.

How Well-Established is the Factoring Company?

There have been occasions when factoring companies have gone out of business, leaving their clients with an instant cash flow problem. So, it is advisable to do some background checks before signing up with a factoring business. For example, how long has the company been in business, and how is it funded? And, it is a good idea to ask for references from customers in your sector and research online reviews of the factoring business.

How is the Factoring Account Managed?

Since you’ll likely interact with your factoring company on a daily basis, it’s important to understand how your account will be managed. You’ll be submitting new invoices for funding, addressing any issues that arise, and discussing late payments—so clarity on daily operations is key. Be sure to ask questions like: Will you have a dedicated account manager? What’s the process for submitting invoices? Does the company provide an online portal for account management? Knowing these details upfront can make your experience smoother and more efficient.

Can You Work Well with the Team?

One of the most important factors in choosing a factoring company is the peopleyou’ll be working with. Unlike traditional finance providers, factoring requires ongoing, day-to-day collaboration. Securing the right deal is just the beginning—you’ll be interacting regularly with your factoring partner, and your customers may also engage with their team. That’s why it’s essential to choose a company you trust and feel comfortable working with as a true partner.

Why Choose Universal Funding?

Universal Funding Corporation is your trusted partner, ready to support your business whether you need funding once or on an ongoing basis. We know that reliable cash flow is essential and growth opportunities often come with tight deadlines. Unlike many factoring companies, we can get  funds to you within days.  

Since 1998, Universal Funding has provided over $2 billion in funding to thousands of businesses. As a private funding source, we offer personalized evaluations to tailor the right financial solution for your needs. Our team takes the time to understand your challenges and goals, helping you seize growth opportunities with confidence.

Benefits of our tailored financial solutions:

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